## Answers

Annual after-tax cash flows Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Earnings before interest and tax $450,000 $450,000 $450,000 $450,000 $450,000 $450,000 Tax at 28% $126,000 $126,000 $126,000 $126,000 $126,000 $126,000 Net Income after tax $324,000 $324,000 $324,000 $324,000 $324,000 $324,000 Add: Depreciation $216,857 $216,857 $216,857 $216,857 $216,857 $216,857 Annual cash inflows $540,857 $540,857 $540,857 $540,857 $540,857 $540,857 Release of Working capital Salvage value after tax Annual after-tax cash flows $540,857 $540,857 $540,857 $540,857 $540,857 $540,857 Initial outlay (year) Cost of the equipment Installation cost Working capital - Inventory Training cost Initial outlay (year o). $1,500,000 $18,000 $90,000 $50,000 $1,658,000 Depreciation charge Cost of asset Life of asset Annual depreciation expense $1,518,000 a 7lb $216,857 a/b

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